Annaly, Diversifying out of Agency Market, Offers to Buy Remainder of CXS

By Michael Aneiro

Mortgage real-estate investment trust Annaly Capital Management, Inc. (NLY) announced that it’s offered to buy the remaining shares of CreXus Investment Corp. (CXS) that Annaly doesn’t currently own for $12.50 per share, a 13% markup to CXS’s share price at the time of the offer.

While Annaly focuses on the agency mortgage market, a sector that has been hit hard lately since the Fed’s QE3 announcement, CreXus focuses on commercial mortgage loans and other commercial real estate debt. CreXus has about 76.6 million shares of common stock outstanding, of which Annaly already holds 9.6 million, or roughly 12.4%.

CreXus shares were recently up $1.26, or 11.35%, to $12.36, while Annaly shares were up 13 cents to $15.11.

Wellington Denahan, Annaly chairman and CEO, said this in a statement:

Since our inception in 1997, Annaly has maintained the capacity to diversify its asset base to include real estate related assets in addition to Agency mortgage-backed securities if we determined that compelling other long-term investment opportunities exist relative to the Agency market. While we remain committed to the Agency market, given the current environment, we believe it is prudent to diversify a portion of our investment portfolio. Therefore, we may allocate up to 25% of our shareholders’ equity to real estate assets other than Agency mortgage-backed securities.

A powerful step in this direction is the proposed acquisition of CreXus. We believe that wholly owning the commercial real estate platform we currently manage through FIDAC is complementary to our existing business and return profile and should provide stable and diversified risk-adjusted returns to our shareholders. CreXus’ capabilities and growth may be significantly enhanced when coupled with Annaly’s broad capital base.